By Lynn Vincent

Angela Stillwell’s client Bill had a problem: He’d lost $1 million.

He didn’t lose it all at once. Like others approaching retirement, Bill had, over the past three years, watched his retirement account values plummet as the ill winds of stormy equities markets battered his portfolio. He had wanted to retire in 2006, Bill told Stillwell, a CFP with AXA Advisors in Atlanta. Now, with his retirement plan in tatters, he was concerned he’d have to wait at least seven more years.

An executive in the financial arena, Bill had tracked his numbers very closely, Stillwell says. But he hadn’t considered insurance products as a way to caulk the cracks in his retirement plan when the market bear stomped onto Wall Street in 2000, and then decided to stick around. But Stillwell had. After a careful review of Bill’s post-career financial plan, she shored up his portfolio with a combination of permanent life insurance and annuity products. The result: He’ll be able to retire on time. Insurance-minded financial advisors have long touted the essential role a variety of permanent life and annuity products play in retirement plans. Others (including do-it-yourselfers), however, jettisoned such instruments a decade ago in favor of the dubious philosophy “buy term and invest the difference.” But since sour equities markets began engulfing that difference like a baleen whale swallowing plankton, planners and investors alike are rethinking the importance of those products in sound retirement planning.

“Two or three years ago, we would market [insurance] to wirehouses and independent broker-dealers,” says Lynn Rosenburg Kidd, principal at Innovative Solutions Insurance Services, a life brokerage agency in Torrance, Calif. “Until then, trying to get them to think about life insurance was very challenging. But that’s really shifted in the last year or two.”

Americans nearing retirement—and losing money instead of accruing it—remain woefully uninformed about the fiscal realities of post-career living.

Educating the uninformed
This uptick in interest coincides with a downward slide in retirement assets. According to the Investment Company Institute (ICI) in Washington, D.C., by the end of 2002, U.S. retirement holdings had slipped 8 percent to $10.2 trillion, a decline caused almost entirely by equity fund losses. Meanwhile, Americans nearing retirement—and losing money instead of accruing it—remain woefully uninformed about the fiscal realities of post-career living.

MetLife Mature Market Institute commissioned a test-style survey of 1,201 Americans aged 56 to 65 who were within five years of retirement. Researchers asked participants to answer 15 questions on topics ranging from longevity and long-term care to retirement expenses and asset protection. Among the results:

• The average participant got only five questions right.
• Those who had not yet retired seriously underestimated what it would cost to live during retirement, and overestimated how much they could withdraw from retirement savings and still avoid running out of money.
• Less than 25 percent knew that outliving their money is retirees’ greatest risk.

Educating clients is key to retirement-planning success, says Jim Davey, vice president and managing director of corporate retirement plans for Hartford in Simsbury, Conn. Davey says that’s why the company provides a no-gaps retirement education and advice program.

“We try to deliver all the media that an individual would need to learn about his retirement program,” Davey says. That includes a consultation with an advisor, benefit service centers and an educational and transactional Web-based program. “Because of the education programs, [retirement plan] participants … have better discipline over the long haul. They understand they’re investing for the long term, and we don’t see them changing their plan because of short-term market fluctuations.”

Hartford offers agencies and producers a new four-stage retirement-education workshop series called Plan for Life. The first workshop focuses on setting up a retirement plan and explains simple principles such as the magic of compound interest. Phase two targets clients at midcareer—when they’re ripe to shift mindsets from saver to investor—and explains more complex concepts such as asset allocation. The third stage of the program is preretirement; this is when the advisor presents material on risk tolerance, time horizons and options for closing any gaps that may have arisen in clients’ plans. In the final workshop, tailored to people entering retirement, the advisor discusses withdrawal plans, tax strategies and, perhaps what is most important, how not to outlive one’s money.

Running out of money is a problem that continues to challenge advisors and retirees as life spans lengthen.

Adding longevity to the mix
Running out of money is a problem that continues to challenge advisors and retirees as life spans lengthen. Census data from 2000 shows that the number of people 65 and older will grow 21 percent in the next 10 years. By 2030, one in five Americans will be 65 or older.

Meanwhile, a healthy 65-year-old has a 50 percent chance of living beyond his annuity-table life expectancy of age 85. Still, says Cory Multer, New York Life vice president, “Way too many advisors are planning only through life expectancy” instead of addressing the possibility that clients could live into their 90s and beyond.

Experts say ever-growing life spans make annuity products a bedrock component of a sound retirement plan. But in the hierarchy of retirement-planning instruments, annuities are perennial cellar-dwellers. Over the past 13 years, the gap has widened between retirement assets held in annuities and those in all other categories except federal defined-benefit programs, according to ICI. In the early 1990s, investors poured about two dollars into annuities for every three dollars invested in defined-contribution plans. But by the late 1990s, they were pouring twice as much into defined-contribution plans as they were into annuities. Even after the market correction in 2000, annuities didn’t recover market share. (Continued…)

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